matthew sinclair 311.
(photo credit: Ben Hartman and Jeremy Last)
As discussed in an earlier article, one of the hottest topics on my desk is
whether to go for a tax amnesty.
The much-vaunted secrecy of Switzerland
and Liechtenstein has been reduced in the last year or so.
States has forced Switzerland to agree to cooperate with information requests
pursuant to the US-Swiss tax treaty, and the Swiss Parliament has just ratified
that agreement. France, Germany, the UK and others have reportedly acquired
banks’ customer lists.
Each of these countries have tax treaties with
many other countries, including Israel. These agreements authorize tax
authorities to communicate with each other. So, if this concerns you, should you
knock on their door before they knock on yours? And what will it cost you? Will
Israel has tax treaties with 50 countries including the US, the
UK, Canada and most European countries.
Moreover, Israel is a member of
the OECD and is on the tax “white list” of the OECD. Most of Israel’s tax
treaties contain an article similar to Article 26 of the OECD’s model tax
treaty, which says: “The competent authorities… shall exchange such information
as is foreseeably relevant for carrying out the provisions of this convention or
to the administration or enforcement of the domestic laws concerning taxes of
There are two questions to consider: (1) Will the Israel Tax
Authority (ITA) hand over information upon request to the tax authority of
another country it has a tax treaty with? (2) What happens when another country
lets the ITA have information about an Israeli taxpayer? Will Israel hand over
When a tax treaty is given effect, the obligation of
confidentiality in the tax law will not prevent an authorized official of the
state from disclosing any information that it must disclose according to the
treaty (Income Tax Ordinance, Section 197).
The ITA has issued a circular
(17/2003) regarding the exchange of information between treaty countries. The
circular points out there are a number of ways information may be exchanged:
upon request, automatically, spontaneously, simultaneous tax audit and by way of
economic sector statistics.
The last is the least problematic; in other
cases, the circular states that exchanged information must remain confidential
unless it is filed with a court.
The circular points out that treaties
generally contain the following exceptions to the need to exchange information:
(1) if the case involves administrative measures at variance with the laws and
administrative practice of one country; (2) information that is not obtainable
under the laws or in the normal course of the administration of either country;
(3) information that would disclose any trade, business, industrial, commercial
or professional secret or trade process; or (4) information that if disclosed
would be contrary to public policy.
The circular identifies additional
cases where no tax information exchange is necessary: (5) internal procedures of
the other country not exhausted; (6) no tax at stake; (7) not material; (8)
anti-money-laundering information requested from the ITA; (9) “fishing
expedition” that does not specify which taxpayers are under suspicion; (10) lack
of reciprocity; (11) irrelevant information sought.Will other countries
hand over information to the ITA?
If an Israeli taxpayer wants to come forward
to head off a possible future inquiry, the ITA has “voluntary disclosure”
procedures that must be treated with extreme care. The days of cutting quick,
generous deals with the ITA have long passed, due to a series of well-publicized
scandals. Don’t let unscrupulous tax advisors kid you otherwise.
experience, thorough preparation is needed. Factors that will be taken into
account include: (1) Did an Israeli resident taxpayer under-declare the original
capital amount, or was it received as an inheritance or gift from a non-Israeli
resident? (2) Does the taxpayer have an Israeli tax file? (3) What was declared
on any capital declaration (hatsaharat hon)? (4) How long has this gone on for?
(5) Any exemption applicable for new or senior returning residents? What about
The ITA is inclined to initiate a one-time partial amnesty during
2010, but no general amnesty (not defined), ITA Director Yehuda Nasardishi said
at a conference of the Israeli Institute of Certified Public Accountants in
The aim is to encourage tax offenders to repatriate currency
back to Israel. Consideration is being given to granting amnesty applicants
immunity from criminal prosecution. They would still have to pay the tax due,
but interest and indexation of unpaid tax might be reduced, he said.
remains to be seen if and when such an amnesty will be introduced in Israel. No
further details of the proposals have yet been announced, but it is understood
that they are still being formulated.
In 2009, there was a different kind
of amnesty in Israel for irrevocable trusts regarding the tax years 2003-05. The
catch was that in many such cases, no Israeli tax was actually due in those
years – but the amnesty tax may help reduce capital-gains tax in 2006 onward in
some cases! The amnesty currently proposed would be a step forward in ITA
thinking. Until now, many within the ITA thought it wrong to give any tax
reduction or “prize” to tax evaders. This would only encourage others to do the
same and wait for their “prize.”
But merely reducing the penalties may be
a compromise solution that may, hopefully, bring money back into the economy and
taxpayers back into the tax net, without sacrificing principles.
advice is not to wait for any such amnesty; there is no certainty it
and be workable.
A no-name approach to the ITA may be a safer
As always, consult experienced tax advisors in each country
at an early stage in specific firstname.lastname@example.org
Leon Harris is
an international tax specialist at Harris Consulting & Tax Ltd.